Thank you very much for the most concise and simplest option intro. Highly recommended.

So far, yours is the best blog/site on basic options notes in the web that I have chanced upon.

Featured Trading Videos

There are about 16 FREE trading educational videos from authors like: Darrell Jobman, Brad Matheny, Gary Wagner, Linda Raschke, Adam Hewison, Joe DiNapoli, which traders, both beginners and experienced traders, should find them very useful.Some of the featured videos are as follows:

1) Trading 101: Starting Your Trading ProgramIn this video, author and professional trader Sunny Harris boils trading system design and analysis down to its most essential rules. In just a little more than an hour, you will discover the elements that are necessary to create a winning system, and you'll find out how you can apply each of these elements to your own trading. In addition, you will learn the 6 trading rules that will give you an edge, the 6 money management rules that will improve any system and the 6 essential steps to test your trading methodology.

2) Advanced Trading Applications of Candlestick ChartingBy Brad Matheny/Gary WagnerIn this video workshop, you will discover the crucial chart patterns that candlesticks reveal, how to interpret them and how to use them to pinpoint market turns. You'll also learn how to use candlesticks in combination with familiar technical indicators like Stochastics, %R, Relative Strength Index and Moving Averages to create a dynamic, synergistic and extremely successful trading system.

To get the free instant access to the videos, simply fill out the form here.

Sunday, October 31, 2010

Historical Volatility (HV) is a measure of the fluctuations of the stock price (i.e. how volatile the prices had fluctuated) over a certain period of time in the past.

Suppose the daily closing prices of Stock X and Y for the past 10 days are shown as follows:

As can be seen from the data above, regardless of the direction (up or down), the closing prices of Stock X in the past 10 days have fluctuated / changed by $2 to $5, whereas Stock Y by $1 to $3.Since given the same initial stock price of $100, Stock X has shown bigger fluctuation in terms of dollar, Stock X is said to be more volatile than Stock Y.

Now, suppose Stock Z has an initial stock price of $50 and has also fluctuated by $2 to $5 like Stock X. In this case, given the same fluctuation in terms of dollar but lower stock price than Stock X, Stock Z will be considered to be more volatile than Stock X.Hence, to get relative measurement of volatility and to compare volatilities among stocks with different prices, it is more accurate to reflect the price change in terms of percentage of the stock price, which is known as “Price Returns”.

Historical Volatility (HV) is therefore obtained by calculating the standard deviation of historical price changes (i.e. price returns) over a specified period in the past.

In Statistics, Standard Deviation measures the dispersion (spread) of a set of data points from its mean (average).The more disperse (spread out) the data points from its mean, the higher the standard deviation. This deviation is referred by traders as “volatility”.(Note: Further understanding about standard deviation will be discussed in the future article).

The higher the historical volatility, the bigger fluctuation the stock has experienced. As such, theoretically, the more likely the stock may make big movement in the future too, although this does not give any insight about the trend / which direction it will move to.

Depending of its uses/purposes or data availability, for calculation of HV, we can use historical price data in terms of daily, weekly, monthly, quarterly or yearly.The common period used to calculate HV is 10 days, 20 days, or 30 days (using daily data).To allow comparison between volatilities that are calculated using different period, the HV would be annualized.

By expressing HV using annualised standard deviation of % price returns, the figures can be used to compare the volatility across different stocks, regardless of the stock price and the period used for HV calculation.

In conclusion, Historical Volatility can be defined as follow:

Historical Volatility (HV) is the annualised standard deviation of historical price changes (i.e. returns) over a specified period in the past.

In the next posts, we will discuss:* Formula to calculate HV* Steps to calculate HV using MS Excel (with example)* Further understanding about Standard Deviation

Saturday, October 16, 2010

In the previous article, we had explained what Historical Volatility is very briefly. In these series, in order to gain better understanding and hence be able to interpret its meaning better, we’ll discuss more in-depth about Historical Volatility. As usual, I’ll try to share my understanding about this topic as simple as possible, so that it’ll be easier to understand for everyone.
Click the following link to read each article:

Sunday, October 10, 2010

This short video on the S&P 500 is worth watching. It shows a detailed analysis on a particular chart formation that has proven to be very reliable in the past. If the analysis is right, we couldsee a further move and run in the S&P500 to the upside.Check it out!

Contact Me

Subscribe

Site Tools

Disclaimer

Options involve substantial risk and are not suitable for all investors.All data & information is deemed accurate but is not warranted or guaranteed. It is your responsibility to assess the accuracy, completeness and usefulness of the content of this site. All data, information, opinion expressed, or website links in this site is for informational purpose only, and is not intended to provide any recommendation to buy or sell a security or to provide investment advice. Nor this site endorses or recommends the services of any brokerage company. This site is not responsible for any losses or damages whatsoever that may be arising from any use of the content of this site or website links in this site. You are solely responsible for your trading outcomes or for any losses, monetary or others, which may be resulting from the use of the content of this site. You must do your own due diligence before committing any investment.